In the typical real estate transaction, the bank loans you the money to buy the property, but many real estate owners miss the chance to make money from a source that they frequently do not even see. What would that do, you say?
Take, for instance, a property that you have several thousand dollars in equity, and you have someone who wants to buy it from you. With equity, you will want to make sure that you protect your profits by shielding your gains from taxes as much as you can. It is not only a matter of income taxes or municipal taxes that may affect your bottom line, and there are additional taxes that tax you at a higher rate.
There are many rules that govern taxes like capital gains tax, so consulting with an accountant or other tax professional is really important in order to save your money and profits. It may seem counter intuitive, but loaning the buyer your profits from the sale may be the best way to limit your tax liability and generate some income doing so. Now, I do not recommend loaning the money back unless you have primary lien position, otherwise you can lose every cent you have in the deal in the event of a foreclosure by the primary lien holder.
By loaning on your own property, you have a very proactive opportunity in dealing with the home owners and can cut off any foreclosure by dealing directly with the borrower. If the buyer does get behind on payments, you simply go to them personally and express some empathy for them, then offer to take the property back through a deed in lieu of foreclosure. This keeps you from having to go through the expense of a foreclosure, and it keeps one off of the record of the homeowner as well. Even when you take it back, you can rent it to them or kick them out and rent to someone else, until you find another buyer for it. After you take control of it again, your options are wide open.
Being in this position may sound like a headache, and it can be at times, but you will make a residual interest check and you can help people get their feet back under them, which helps them too. The homeowner may even eventually refinance you out of your lien position altogether.
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